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Jumbo Loans

Among your options when getting help financing your home purchase, there are conforming loans and jumbo loans. Conforming loans have to stay below a specified limit, known as the conforming loan limit. Anything above this mark is then considered a jumbo loan and cannot be purchased through the government institutions Fannie Mae or Freddie Mac.

A jumbo loan can be a great option for certain people, particularly when you're buying a more expensive home.

What is a Jumbo Loans?

A jumbo loan's amount exceeds the national conforming loan limit set by the Office of Federal Housing Enterprise Oversight. The limit is set annually. Otherwise, jumbo loans can offer many of the same features as conforming loans - they just cannot be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac.

Why consider a Jumbo Loans?

A jumbo loan just might be the perfect fit for you. To find out, consider these four points:

  1. Larger loan amount: By definition, you can get a bigger loan if you go with a jumbo mortgage. This is a great solution if you are looking at houses in a higher price range, particularly if you can afford a more expensive home but don't have enough saved up yet to get a loan under the conforming limit. Jumbo loans are traditionally used to buy larger, single-family homes.
  2. Good credit builder: A jumbo loan can be a good way to build credit quickly. By making your mortgage payments on time, there is potential to greatly improve your credit score.
  3. Higher interest rates: Jumbo loans tend to have higher interest rates than conforming loans, meaning your monthly payments will be more expensive. However, the amount can vary, and the gap in prices between conforming and non-conforming loan rates has been shrinking over time.
  4. More costly to refinance: You may find it is more expensive to refinance this type of mortgage because of higher closing costs. If you think refinancing is a possibility for you in the future, you may want to keep this consideration in mind when selecting your mortgage.

Who qualifies for this type of mortgage?

Because the loan amount for a jumbo mortgage is larger, lenders will want to ensure you have the income and assets to afford it.

  • Debt-to-income ratio: Typically, you will need a lower debt-to-income ratio in order to qualify for a jumbo loan. This will demonstrate to lenders that you have sufficient funds to make your payments each month.
  • Credit score: Like other types of mortgages, your credit score will play a big part in determining your qualification for a jumbo loan. The higher your score, the more likely you are to get approved, because it indicates good financial health and general fiscal responsibility.
  • Reserves: One factor that is unique for jumbo loans is your amount of reserves, or emergency funds. A lender will look to see if you have higher reserves. While the amount will vary, many lenders will prefer that you have at least six months' worth in your bank account after closing.

Think a jumbo loan is right for you? Apply online through Thompson Kane today!